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A Flawed Deficit Reduction Trigger

Blog Post

Tuesday, August 09, 2011

The new debt limit law includes a trigger that would impose severe spending cuts if legislation to reduce the deficit by more than $1.2 trillion has not been enacted by Jan. 15, 2012. It was designed to give an incentive for the new congressional committee to succeed where others have failed.

Beginning in Fiscal Year 2013, the trigger requires reductions in discretionary and mandatory spending to make up for any shortfall. The cuts would be evenly divided between defense and non-defense spending.

Social Security, payments to Medicare beneficiaries, Medicaid, unemployment insurance, and other low-income programs would not be subject to cuts under the trigger. Any cuts to Medicare would also be limited to 2 percent. Because these programs account for well over 90 percent of all mandatory spending over the next ten years, this is a significant loophole that could make the trigger an ineffective tool. The trigger also does not address revenues.

Because of the exemptions, the cuts would fall disproportionately on annual appropriations for defense and non-defense programs. Little consideration would be given to the policy rationale behind the cuts to specific programs.

If the committee responds to the S&P downgrade by exceeding its target with a proposal approaching $4 trillion in deficit reduction, a trigger cutting only $1.2 trillion could provide policymakers with an incentive to block the larger proposal.

For a trigger to be most effective, it must apply to revenues and a substantial portion of the spending that is driving deficits in the first place. Exemptions and the temptation for Congress to block automatic spending cuts have weakened previous triggers. That poor track record suggests that both parties should focus on making the joint committee a success and not count on a trigger to address our nation’s fiscal challenges.